Comparing old and new: Changes to Germany's Renewable Energy Act

In the summer of 2014 Germany amended its Renewable Energy Act (Erneuerbare Energien Gesetz or EEG). The new law, often referred to as “EEG 2.0”, came into effect on the 1st of August 2014. The EEG is at the heart of the transformation of Germany’s electricity system and has been credited with an increase in renewable capacity from about 4.7 gigawatt in 1990 to 84.0 gigawatt in 2013. The law gives renewable energies priority access to the grid and provides guaranteed feed-in payment to renewable producers. Since the first version of the EEG entered into force in 1990, it has been subjected to five adjustments. This time however, the German government claims to have started a major overhaul of some basic principles of the Renewable Energy Act, saying the changes will better take into account the requirements of power grids and the electricity market. The reforms also pave the way to switch from feed-in tariffs to a system of tenders. This factsheet provides an overview of the most important changes in the EEG 2014.

EEG 2012Feed-in tariffs guarantee producers of renewable energy a fixed price per kilowatt-hour for their electricity. Transmission grid operators are bound by law to buy all renewable energy and sell it on the exchange. The set tariffs for renewables have decreased annually for new installations as required by the EEG. However, overall payments to solar power producers have increased sharply in recent years as installation of photovoltaics exceeded expectations.

EEG 2014For the next three years, the new EEG maintains a set level of remuneration per kilowatt-hour for renewable electricity. It does however alter the way how new installations receive the remuneration for electricity they feed into the grid. The new system is a “contract-for-difference”-scheme: instead of a set feed-in payment that is automatically paid to the producers of renewables in Germany, the EEG now requires mandatory direct marketing for most producers. It obliges producers to sell their electricity themselves. In order to limit the financial risk, producers receive a market premium when selling their product directly. This premium is calculated as the difference between the average monthly wholesale price at the energy exchange and the set remuneration for electricity from different renewable sources stated in the law. Already existing installations are exempt, as well as very small installations (under 100 kilowatt).

Competitive bidding to set RE prices

EEG 2012So far, feed-in tariffs have been adjusted by the German administration in several previous amendments to the EEG.

EEG 2014As of 2017, the payment for renewable energy set by the government will be replaced by a competitive bidding model (tenders). Financial support for new renewable plants will be given to those investors offering the lowest price for the electricity their installation will produce. The EEG itself does not give details on this model but plans to pilot the bidding process for solar farms until 2017.

„Growth corridors“ for renewables

EEG 2012Until 2012, there was no limit to the new installation of renewable technologies in Germany. Wherever citizens had planning permission and deemed it profitable they could install a renewable power facility. When this resulted in a “solar panel boom” with 7.5 gigawatt newly installed capacity in 2011, photovoltaics were submitted to a “floating cap” meaning that – depending on the number of previously built facilities – newly added arrays would gradually receive reduced feed-in fees in order to stay within planned limits for solar power.

EEG 2014The new EEG sets annual targets for the addition of wind, solar and biogas capacity. It introduces growth corridors, also called “floating caps”: feed-in remuneration is adjusted depending on the amount of newly installed capacity. If new installations hit the target, payment for renewables is reduced. The government hopes that this will help to focus on the most cost efficient technologies (wind and solar) and will allow better coordination of renewable development and the expansion of the grid (seen as necessary to adjust the power system to a rising share of renewable energy). It also named planning security for the (fossil) energy sector as an incentive for growth corridors.

EEG 2012Since 2004, the installed capacity of photovoltaics has grown from 1.07 gigawatt to 35.7 gigawatt in 2013. In 2012, the German government set a “floating cap” on solar power, limiting it to 2.5 to 3.5 gigawatt per year and reducing the feed-in remuneration of small rooftop panels (under 10 kilowatt) from 24.43 cents per kilowatt-hour to 19.5 ct/KWh.

EEG 2014The annual target corridor for PV is 2.4 – 2.6 gigawatt (gross). The new EEG retains the absolute cap of 52 gigawatt for the installed capacity of solar power in Germany (first introduced in 2012). Installations beyond this target will not receive any funding under the EEG.

Depending on the size of the installation, new photovoltaics will receive 9.2 to 13.1 ct/KWh. This tariff is generally set to be reduced monthly; by how much and if at all depends on whether the addition of new solar capacity exceeds or falls short of the prescribed target.

Wind onshore

EEG 2012The installed capacity of onshore wind power in Germany was 33.7 gigawatt in 2013. Since 2000 there has been an average growth of 2.18 gigawatt annually. In 2001, 2002, 2003 and 2013 annual growth exceeded 2.5 gigawatt.

EEG 2014Following criticism from prime ministers of federal states and wind power lobby-groups, the originally planned annual target of 2.4 – 2.6 gigawatt for new onshore installations was adjusted. The target now excludes the capacity added when old turbines are replaced by new, more powerful models (repowering), thus de facto expanding the growth cap. The management premium and a bonus paid for turbines providing stabilising features (Systemdienstleistungen, SDL) are phased out. Critics argue that this might further dampen the appeal of investment in new wind parks. New onshore wind installations will receive 6 to 8.9 ct/KWh, depending on local wind conditions. From 2016 onwards this tariff is reduced quarterly. By how much depends on whether the addition of new capacity exceeds or falls short of the prescribed target.

Wind offshore

EEG 2012By the end of 2013, 116 offshore wind turbines in the Baltic Sea and the North Sea were installed, with a combined capacity of 0.52 gigawatt. Some further 103 facilities (0.39 gigawatt capacity) were completed in 2013 but still lack grid connection. Total capacity of wind parks under construction or without grid connection was 2.43 gigawatt. They are supposed to become fully operational in 2014 or 2015.

EEG 2014The EEG sets a target of 6.5 gigawatt till 2020 und 15 gigawatt by 2030 for offshore wind power. Originally, the government aimed for a total offshore capacity of 10 gigawatt in 2020 and 25 gigawatt by 2030.

Facilities that become operational before 2020 can choose between a fixed payment of 15.4 ct/KWh for 12 years or 19.4 ct/KWh for eight years (which is reduced to 18.4 ct/KWh from 2018 onwards). After this period, the basic reward is reduced to 3.9 ct/KWh, depending on the distance to shore and the depth of the sea.

EEG 2014The target for biomass is set to 0.1 gigawatt per year. Only biogas plants that operate with biowaste and liquid manure will receive more than the basic remuneration of 5.85 to 13.55 ct/KWh (depending on capacity). Tariffs are reduced by 0.5% on a quarterly basis for new installations. The government followed the European Commission’s guidelines, stating that “in view of the overcapacity in the food-based biofuel market, the Commission will consider investment in new and existing capacity for food-based biofuel not to be justified”.

Exemptions and rebates for German businesses

The EEG 2012 provided several possibilities and loopholes for companies to become exempt from the EEG-surcharge. The underlying idea of the EEG 2014 is: More consumers – including industries – should help to foot the bill of the EEG-surcharge.

Privileges for companies or households that produce electricity for own consumption

EEG 2012To ease the effect of the EEG-remuneration payments on businesses, the EEG 2012 had several exemptions. If companies or consumers do not transmit electricity through a grid-system or use electricity they produced themselves, they do not have to pay the EEG-surcharge. This applies to producers of fossil and renewable energy. A two-cent (Euro) per kilowatt-hour reduction on the EEG-surcharge was granted to suppliers that source 50 per cent of their electricity portfolio from domestic renewable electricity (“green electricity privilege”). Seeing that they could avoid paying the EEG-surcharge, many companies that would not automatically be considered as “generating their own electricity” started shaping tenure and leasing schemes with operators of small power plants in order to fall in the category of self-suppliers. The share of electricity generated by privileged producers has increased by one-fifth between 2005 and 2012.

EEG 2014Generally, all new electricity-installations whose operators use electricity for self-supply have to pay 40 percent of the EEG-surcharge (as of 2017). Those self-suppliers that do not source their electricity from a renewable or highly efficient combined-heat-and-power plant, have to pay 100 percent of the EEG-surcharge.Other facilities continue to be exempt from paying the EEG-surcharge:- Operators of facilities with an installed capacity of less than 10 kilowatt.- Operators that are not connected to the grid system (island solutions).- Operators that produce renewable energy for self-supply only and do not receive any EEG-remuneration.- The electricity needed for the running of the power station itself is exempt from the EEG-surcharge. Exceptions are also made for already privileged facilities (both renewable and conventional) as operators are protected by legitimate reliance on previously existing law.

Privileges for energy-intensive industries

EEG 2012A range of industry companies qualify as “electricity-intensive” under the EEG 2012. They have to fulfill certain criteria, including high use of electricity (over 1 gigawatt-hour per year) and electricity costs representing 14 percent of their gross added value. The exemption was introduced to keep these firms competitive. In 2005, only 297 companies benefited. By 2014, this number had increased to 2098.In 2014, the exemptions amounted to 5.1 billion euros in EEG-surcharge. This drove electricity prices for non-privileged consumers by 1.35 cent per kilowatt-hour or roughly 38 euros a year in an average two-person household.In December 2013, the European Commission started an in-depth investigation whether these privileges breached EU state-aid rules. In April 2014, the Commission adopted new rules on public support for environmental protection and energy, which allow reducing the burden for a limited number of energy intensive sectors defined by the EU and member states.

EEG 2014The government wants to achieve three things with the new rules for energy intensive industry: 1) lowering the EEG-surcharge burden on non-privileged consumers; 2) continue to spare energy-intensive industries from higher electricity prices; 3) comply with the guidelines and state-aid rules of the European Commission. The German government reached an agreement with the EU competition commissioner Joaquín Almunia and revised its list of 65 energy-intensive sectors – still adding around 5 billion euros a year to the EEG-surcharge. The Minister of Energy, Sigmar Gabriel argues that the chemical, building, glass, metal, paper and steal industries employ 800,000 workers whose jobs would be in danger if exemptions on the EEG-surcharge were drastically reduced. In its draft-law on “specific compensation for electricity- and trade-intensive enterprises” the government suggests stricter rules under which companies qualify as electricity-intensive. Opponents of the privileges argue that many businesses have changed structures in order to qualify as electricity-intensive and would keep doing so. Furthermore, industries benefited from the low wholesale price of electricity caused by the expansion of renewables (merit order effect).